Unethical Demand and Employee Turnover

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: May 1, 2013

Abstract

This paper argues that consumer demand for unethical behavior such as fraud can impact employee turnover through market and psychological forces. Widespread conditions of unethical demand can improve career prospects for employees of unethical firms through higher income and stability associated with firm financial health. Similarly, unethical employees enjoy increased tenure from the financial and psychological rewards of prosocial behavior toward customers demanding corrupt or unethical behavior. We specifically examine the well-documented unethical demand for fraud in the vehicle emissions testing industry, and its impact on employee tenure. We use data from tests conducted by several thousand licensed inspectors to demonstrate that fraudulent employees and employees of fraudulent firms enjoy longer tenure. These results suggest further work to separate the multiple psychological and economic mechanisms likely driving our findings.

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Lucian A. Bebchuk at Harvard Law School, Marc J Epstein at Rice University - Jesse H. Jones Graduate School of Business, Geoffrey M. Heal at Columbia Business School - Finance and Economics, Donald John Roberts at Stanford Graduate School of Business